Marc Dreier loses $33M art collection after bilking more than $700M from U.S. and Canadian firms

After his arrest in Toronto for pretending to be a lawyer for an Ontario pension fund in order to close a bogus financial deal in 2008, a high-flying U.S. lawyer spent three days in an Ontario jail making frantic phone calls, including an attempt to sell his valuable art collection to keep his outrageous Ponzi scheme afloat.

Marc Dreier, called “the Houdini of impersonation” by prosecutors, is still in prison — sentenced to 20 years in the United States for his massive fraud — but he no longer has that stunning art collection to show off or sell off; on Monday, the U.S. government turned over 18 colourful works by such artists as Andy Warhol, Roy Lichtenstein and Damien Hirst to help compensate his victims.

“Fraud is the dysentery of crime: even after the infection is contained, the unpleasant after-effects linger interminably,” U.S. District Court Judge Jed Rakoff, said in his decision on Dreier’s art,

“Even after a confidence man has been convicted, the victims of his fraud are often reduced to fighting among themselves over what assets remain.”

Before his Toronto arrest, Dreier displayed the artwork, worth an estimated US$33-million, in his New York home and used it as collateral to push through his largest scam.

And like the fantasy financial schemes Dreier improbably managed to close, the compensation deal was unusual and complicated.

Judge Rakoff agreed the art should go to Heathfield Capital Ltd, the successor to Dreier’s last and largest victim, in return for Heathfield paying $1.65-million, money that will, in turn, go to Dreier’s other victims.

Dreier’s shock charade of lies, forgery and masquerades unraveled Dec. 3, 2008, when he went to the Ontario Teachers’ Pension Plan’s offices in Toronto and concocted a meeting with Michael Padfield, the plan’s legal counsel. The two introduced themselves and exchanged business cards.

Before leaving, Mr. Dreier asked if there was a private place where he could make phone calls and he was shown to a room in the pension offices.

Then, pretending to be Mr. Padfield and using his business card, he greeted a representative of Fortress Investment Group, a hedge fund, ushered him into a pension plan conference room for a meeting to close a US$44.7-million deal, supposedly backed by the respectable name of the pension plan.

His ruse was uncovered when the Fortress official met the real Mr. Padfield. Mr. Dreier was arrested that night and spent three days in Ontario’s Maplehurst Detention Centre until his release on $100,000 bail.

While in custody, court later heard, he phoned partners in his law firm to say he could replace missing money from the firm’s escrow accounts by selling his art collection.

It was a sure sign the bogus Toronto deal was only one of many stunt frauds Dreier had pulled; since 2002, he had bilked more than $700-million from U.S. and Canadian firms.

“Dreier at the time was a well-respected attorney with impeccable credentials who headed a large law firm,” Judge Rakoff wrote in his decision.

Harvard-educated and talented, Dreier, 63, forged a super law firm with 250 members and offices in five cities.

His firm represented celebrity musicians such as Justin Timberlake, Elvis Costello and 50 Cent; sports figures such as Sammy Sosa and Maria Sharapova; and some of the world’s major sports teams, including Manchester United Football Club and the New York Mets.

Dreier also worked feverishly on complex deals with hedge funds and institutional lenders, using his reputation and forged audited financial statements, fake letters from reputable accounting firms and bold impersonation stunts.

He was selling promissory notes — like IOUs with a deadline — from a large New York-based real estate firm, claiming investors wanted to unload them at a discount because of a need for cash in the financial crisis.

“I engineered a scheme to issue and sell fictitious promissory notes purportedly issued by companies in the United States and Canada,” Dreier admitted.

He was not prosecuted in Canada, instead returning to New York for trial. He pleaded guilty to securities fraud, wire fraud and money laundering and was sentenced to 20 years.

The sham deal involving the artwork was closed a few weeks before his Toronto arrest and was his largest swindle.

When Elliot International LP had concerns about paying US$100-million for $110-million worth of promissory notes supposedly issued by Solow Realty and Development Company, Dreier said he personally vouched for the sellers and offered his art collection as security on the deal.

In return for the added security, Dreier would be paid a $1.65-million fee.

There were six Andy Warhol silkscreened canvasses (four portraits of Jackie Kennedy created in 1964, one of Rudolph Nureyev from 1975 and another of John Lennon from 1986); three pieces by Roy Lichtenstein from 1963, 1965 and 1975; two Damien Hirst paintings from 1998 and 2007; and a Mark Rothko oil on canvas, finished in 1963; among others.

Authorities seized the art.

Judge Rakoff agreed the art should go to the company that was scammed in the deal, as long as it pays the $1.65-million fee that was due Dreier.

Other victims, including Fortress, objected, saying the artwork should be sold and pooled to the advantage of all victims.